Understanding SEIS/EIS Advance Assurance Rejections (and How to Avoid Them)

Introduction

Securing finance is often a race against the clock. Investors want assurance that their tax relief is safe before they commit funds, and HMRC’s advance assurance provides this peace of mind. Yet many founders underestimate the importance of this pre‑approval stage. A single refusal can delay a funding round by months and erode investor confidence. According to HMRC’s venture‑capital statistics, there were 3,090 EIS applications in 2024–25, with 76% approved and 3,195 SEIS applications with 85% approved. Put differently, hundreds of UK startups faced SEIS/EIS application rejection or delay.

Why does it happen? HMRC’s guidance explains that advance assurance is discretionary and non‑statutory; there is no right of appeal, and applicants must provide complete and accurate information. The department will not give an assurance if the company has already issued shares or is unlikely to meet all qualifying conditions. Incomplete or incorrect submissions, failure to meet the risk‑to‑capital condition, non‑qualifying trades, inappropriate share structures and missing investor evidence are among the most frequent pitfalls. Such eligibility mistakes can derail your plans.

This article draws on official HMRC guidance, recent data and industry commentary to analyse why HMRC refuses applications, what happens when you receive a rejection, and how to avoid SEIS/EIS rejections. It also demonstrates how Undo Capital’s automated platform helps startups prepare compliant documents, verify investors and reduce the risk of refusal. Internal links to deeper guides on applying for SEIS/EIS and avoiding common errors are included for further reading.

Top Reasons for HMRC SEIS/EIS Rejections

Why HMRC Rejects SEIS/EIS Advance Assurance Applications

Despite the availability of templates and checklists, SEIS/EIS advanced assurance remains a specialist process. HMRC’s manual notes that the service is non‑statutory and discretionary; the department will not provide assurance if the application lacks enough information to decide. Below are the principal reasons for SEIS EIS application rejection.

Incomplete or Incorrect Documentation

The most common issue is simply incomplete documentation. HMRC requires a comprehensive submission package that includes a detailed business plan, financial forecasts, the company’s latest accounts, memoranda and articles of association, a register of members, a cap table, and evidence of prospective investors. If these pieces do not match or are missing, the application may be declined. HMRC’s guidance warns that failing to provide full disclosure renders any assurance invalid. Applicants sometimes rely on generic templates instead of a bespoke plan; HMRC expects a genuine strategy explaining how the funds will be used to grow the business.

Non‑Qualifying Trades or Activities

Even with perfect paperwork, a company may fall at the next hurdle: the trade must be qualifying. HMRC lists excluded activities, including dealing in land or financial instruments, banking, insurance, legal services, property development, farming, forestry, energy generation, nursing homes and other trades deemed passive or low‑risk. Businesses inadvertently choose an inappropriate Standard Industrial Classification (SIC) code or misinterpret the rules, leading to EIS advance assurance rejected scenarios. If your business operates partly in an excluded sector, you must demonstrate that non‑qualifying activities are ‘insignificant’.

Lack of Investor Details

HMRC insists on evidence of investor intent. The guidance specifies that if you are raising money directly, you must provide the name, address and intention to invest from prospective investors; if you are working with a fund manager or crowdfunding platform, you must provide evidence of their acceptance. Without this evidence, HMRC may doubt whether investors exist and may refuse the advance assurance. Many founders assume that finding investors is the next step after obtaining the assurance, but the process actually requires at least one interested investor up front.

Weak or Generic Business Plan

A strong business plan is not just a marketing document; it is central to demonstrating eligibility. HMRC expects a realistic growth strategy showing how capital will be used, accompanied by credible market research and financial projections. Overly optimistic forecasts or generic language raise red flags. Oxbridge Content notes that overly optimistic financial projections are a common pitfall. HMRC’s manual emphasises that the risk‑to‑capital condition requires the business to have long‑term growth objectives and that investors’ capital is genuinely at risk. If the plan reads like a promotional brochure or fails to show risk and growth potential, SEIS/EIS approval issues can result.

Share Structure Issues

Both SEIS and EIS require issuing ordinary shares that are fully paid up in cash, carry no preferential rights and cannot be redeemed. Some founders inadvertently issue preference shares or embed redemption clauses, which disqualify the issuance. Additionally, anti‑dilution provisions or loan notes can jeopardise eligibility. Getting the share class wrong is a technical error, but a frequent reason for SEIS advance assurance refused decisions.

Common Eligibility Mistakes Leading to Rejection

HMRC’s eligibility rules extend beyond paperwork. The following mistakes often cause SEIS/EIS application errors and future compliance headaches.

Company Age or Asset Limits Exceeded

For SEIS, the company’s gross assets must not exceed £350,000 immediately before the share issue. For EIS, the limit is £15 million pre‑investment and £16 million post‑investment. Additionally, SEIS applies only to companies that have been trading for less than three years (increased from two years for shares issued on or after 6 April 2023), while EIS typically requires the investment to take place within seven years of the first commercial sale (or ten years for knowledge-intensive companies). Exceeding these thresholds or miscalculating group assets leads to automatic rejection.

Employment or Revenue Thresholds Breached

Employee headcount matters. SEIS companies must have fewer than 25 full‑time equivalent employees; EIS companies must have fewer than 250 full‑time equivalent employees. These counts include employees of any subsidiaries, and part‑time staff are aggregated to full‑time equivalents. Startups that ignore these thresholds or include consultants/contractors incorrectly can inadvertently breach the rules. Similarly, raising more than £250,000 under SEIS or exceeding EIS fundraising limits across lifetime allowances triggers eligibility mistakes.

Share Structure Not Compliant

As noted, SEIS/EIS shares must be ordinary shares with no preferential rights. Mistakes arise when companies issue shares with preferential dividends or redemption rights, inadvertently creating a hybrid or preference share. Convertible loan notes also disqualify an issue because they can convert to redeemable shares. Cap table mistakes, such as incorrectly reflecting paid‑up capital or misreporting share classes, constitute SEIS/EIS documentation problems and will delay the process.

Linked Companies or Previous Investments Misreported

HMRC considers the group as a whole. If your startup has subsidiaries or is part of a larger group, its assets and employees must be aggregated. Failing to disclose linked entities or previous fundraising rounds can breach asset and investment thresholds. For example, failing to declare a prior investment round that used up some of your SEIS allowance could lead to EIS advance assurance being rejected. Similarly, missing or incorrect details on affiliated companies may raise concerns about compliance.

What Happens After Rejection: Your Options

Receiving a rejection letter is discouraging, but not necessarily the end of the road. Here’s what to expect and how to respond.

Reviewing HMRC Feedback

HMRC provides feedback explaining why an application was rejected. Carefully read the rejection letter to identify whether the issue was missing information, an ineligible trade, or a structural problem. Because advance assurance is non‑statutory, there is no formal HMRC advance assurance appeal. However, you can address the feedback and reapply. HMRC explicitly states that it will not give assurance when information provided does not enable it to decide; this is often a fixable problem.

Fixing Documentation and Eligibility Gaps

Once you understand the reasons for rejection, update the documentation accordingly. If the problem was an incomplete business plan or missing investor details, compile the necessary documents and ensure consistency across all attachments. If eligibility problems such as excessive assets or ineligible trades were cited, restructure accordingly or wait until you can meet the thresholds. Platforms like Undo Capital automate eligibility checks and highlight missing information, reducing the risk of SEIS/EIS resubmission failures.

Resubmitting Your Application

There is no explicit waiting period for SEIS/EIS resubmission after a rejection, but it is wise to address HMRC’s comments thoroughly before re‑applying. Many companies successfully obtain assurance on the second attempt once documentation is corrected. Keep investors informed of the timeline; a clear plan to fix errors can maintain their confidence.

How to Avoid SEIS/EIS Rejections in the First Place

Prevention is better than a cure. The following practices help startups avoid SEIS/EIS approval issues and ensure smooth HMRC interactions.

Pre‑Check Eligibility

Before drafting the application, evaluate whether your company meets SEIS/EIS conditions. Confirm the age of the business, gross assets, employee numbers, and trading activities. Review the list of excluded activities. Undertake an internal audit of your cap table and share structures to confirm only ordinary shares are being offered. This upfront scrutiny mitigates common SEIS/EIS pitfalls.

Prepare Investor Evidence

Contact prospective investors and secure letters of intent. HMRC requires names and addresses of direct investors or confirmation from a crowdfunding platform or fund manager. Many startups forget this step and thus fail to prove there is genuine investor interest. Provide an expression‑of‑interest letter that outlines how much the investor intends to subscribe and why they believe the business meets SEIS/EIS requirements.

Ensure Document Consistency

Your business plan, financial projections, cap table and statutory documents must align. Inconsistent numbers (for example, the total number of shares issued in the cap table not matching the number described in the business plan) create doubts about your governance. Use a checklist to ensure all attachments are included and up‑to‑date. Tools like Undo Capital’s platform automatically cross‑check values across documents, flagging inconsistencies before submission.

Work With Specialists or Automated Platforms

Given the complexity of SEIS/EIS rules, many startups benefit from professional advisors or platforms that specialise in venture‑capital schemes. Undo Capital, for example, automates eligibility checks against HMRC rules, generates compliant documentation and performs investor verification. By integrating HMRC guidance and industry best practice, it helps companies reduce SEIS/EIS eligibility errors and pass the risk‑to‑capital condition. Working with specialists also means you have up‑to‑date knowledge of scheme changes, such as recent increases in SEIS asset limits.